1. Field of the Invention
The present invention relates to market trading. The present invention relates more particularly to controlling an order slicer for varying or replacing a trading strategy in response to changing market conditions, customer requirements, or other factors.
2. Description of the Related Art
Markets have existed for centuries, allowing traders to buy and sell financial instruments, such as securities and commodities. Examples of securities include stocks, bonds, futures and options. Examples of commodities include currencies, metals, and grain. Today, examples of securities markets include “The New York Stock Exchange” (NYSE), “The National Association of Equity Dealers Automated Quotation” (NASDAQ) System, and the “American Stock Exchange” (AMEX). These modern financial instrument markets facilitate the exchange of over two billion shares of stock every business day.
Professional traders typically have different timing objectives associated with different orders. For example, some orders may need to be executed quickly because the trader believes that the price may change unfavorably in the near future. Other orders may have to be executed slowly in order to achieve the best possible price. An example of this would be a trader wishing to execute a large order, perhaps 100,000 units, in a market. Normally, the appearance of such a large order in the market could adversely affect the current market price of the security. For instance, the appearance of a large “buy” order could adversely drive up the price of a financial instrument, such as stock, commodity or currency. Similarly, the appearance of a large “sell” order could adversely depress the price of the financial instrument. The trader may have as an objective to avoid this effect, or he may decide that it is more important to trade the stock quickly and accept the price impact.
Thus, a trading objective can be generally defined as an aim, goal, or end of market trading activity. These objectives could be followed as a means for maximizing the profit of an order for trader, such as maximizing capital gains.
Once the trading objective for the order is determined, it becomes possible to select an appropriate trading strategy. A trading strategy can be generally defined as a plan or scheme for achieving the trading objective. Examples of strategic trading choices are (a) deciding to break a large order into smaller sub-orders, (b) selecting one or more appropriate market executing venues from a number of possibilities with differing capabilities, and (c) selecting the best timing for sending sub-orders into the market.
The use of sub-orders has led to the development of various computer algorithms for deconstructing orders into smaller sub-orders and sending these sub-orders into the market. A system that implements such an algorithm is known as an “order slicer.” Various conventional order slicers are in use for generating sub-orders and sending them to the market. Typically, the trader sends an order to the order slicer from his order management system via a communications link. The order slicer receives the order, and starts executing the order according to a fixed strategy (for example, to split the order up into smaller sub-orders and try to participate in a certain percentage of the total traded volume in the market for that financial instrument).
The use of a conventional order slicer brings a new set of problems for the trader. In particular, if the trading objective for an order changes, the conventional order slicer is limited in how its strategy can be varied to suit the new trading objective or objectives. For example, the trader may judge that an order currently being sliced will achieve a better price if traded more heavily later in the day. As a result of the new objective, the trader has the need to modify the strategy employed by the order slicer. Conventional order slicers only support interacting with the order slicer via the trader's order management system. To change the order slicer's strategy will typically require an order modification (cancel/replace) to be issued by the trader, which would include a new set of parameters added to the order to control the order slicer.
Furthermore, this new set of parameters may adjust some of the details of the trading strategy, but the overall trading strategy remains constant. If a trader wishes to replace one trading strategy with another trading strategy (for example, switching from a strategy of participating in a certain percentage of the day's trading volume to a strategy where the order slicer increases the trading rate towards the end of the trading day), he or she will typically cancel the order from his order management system and send it to a different order slicer with a different strategy, closer to what the trader envisages he or she needs.
This use of “cancel/replace” from within an order management system to control parameters of a fixed strategy order slicer, or the use of a full cancel and subsequent sending of an order to a different destination in order to switch to a different strategy, can be a somewhat disruptive and cumbersome event in market trading.
Therefore, there is a need for a technique for controlling an order slicer in which the order slicer can accept strategy changes in real time, so that a trader can vary the strategy of the order slicer in response to market conditions and customer requirements.